On October 20, 2005
Synplicity, Inc reported results for the third quarter, the period ending September 30, 2005. Total revenue for the quarter was a record $15.9 million, a 13% increase from revenue of $14.1 million for the same quarter in 2004 and a 5% sequential increase from revenue of $15.2 million. The $15.9 million exceeded prior revenue guidance. License revenue at $8.8 million, accounting for 56% of total revenue, was up 14% year-over-year from $7.7 million and up 5.6% sequentially from $8.4 million. Maintenance revenue at $7 million, accounting for 44% of total revenue, was up 10.3% year-over-year from $6.4 million and up 3.5% sequentially from $6.8 million. Synplicity added 50 new customers in the quarter. Recurring revenue was 64% of total revenue. Revenue from Asia was up 65% on a year-over-year basis.

During the conference call repeated references were made to a large TBL contract that was signed in Q3 but had been anticipated to close until Q4.

FPGA bookings (Synplify PRO) comprised 76% of total product bookings. ASIC (Certify) and Structured ASIC (Synplify ASIC) bookings made up remainder. ASIC bookings were up 30%. Structured ASIC bookings were up 150% year-over-year. Time Based Licenses were 23% of bookings in the quarter. Bookings on a geographic basis were 47% NA, 21% Europe 16% Japan and 16% AP.

Net income for the quarter was $2.5 million, or nearly 16% of revenue. This approaches a 300% increase compared to $646K in the third quarter of 2004 and a 170% increase sequentially compared to $921K.

Gary Meyers, President and CEO, said, "In the third quarter, we continued to provide leading FPGA, structured/platform ASIC, and cell-based ASIC solutions while maintaining our excellent standard of support, resulting in revenue growth in excess of the industry, a significant increase in our operating margin and a year over year double digit increase in total product bookings. As we look to the fourth quarter of 2005, we are focused on continuing the momentum of revenue and profitability growth.

EDA versus MCAD

The detailed quarterly performances of a selected group of public MCAD Vendors has been provided in the authors' November 2005
MCAD Commentary recently published on MCADCafe.

The three top mechanical CAD companies (Autodesk, Dassault Systemes and UGS) sported revenues of $929 million in Q3 2005, 23% more than the $757 million in revenue for the top three EDA companies (Cadence, Synopsys and Mentor Graphics). The MCAD vendors also generated 13 times the amount of earnings. MCAD earnings were 14.7% of revenues compared to 1.4% for the EDA vendors. See
Table 7 below.

Keep in mind that Autodesk sells its products predominantly through valued added resellers and distributors. Dassault Systemes sells predominantly through IBM and its Business Partners and in some instances, notably SolidWorks, through VARs. Thus, if one were to count actual end-user purchases of the latter MCAD products, the combined MCAD revenue total would raise the Big 3 MCAD dollar total substantially. On the other hand, Autodesk has not-insignificant revenue outside MCAD in AEC, GIS and Media/Entertainment.

The comparison of earnings across the two industries is also difficult general due to a plethora of one-time charges associated with acquisitions. The earnings comparison for UGS is further complicated by purchase accounting adjustments related to its Venture Capital buyout from EDS.

EDA Vendor Stock Performances in Q3 2005

As shown in
Tables 8 and
9 and
Figure 3 below, the combined Q3 stock prices for the EDA vendors were up 15% in absolute dollars and nearly 9% in average percentage change. This compared to just under a 10% rise in the average price of the three major stock indexes. Ansoft was the leader in terms of year-over-year stock price growth with 83%. Cadence, Synopsys and Synplicity had increases of 20% or more, while Magma, Mentor and Altium had significant double digit stock price declines. On a sequential basis the combined stock prices rose over 11% in absolute dollars and 5.4% in terms of average percentage change while the major stock indexes rose a modest 3.6%. Ansoft, Cadence and Synopsys each rose about 20% from the prior quarter. Altium and Mentor stock prices decline 18% and 16% respectively and Magma stock declined 3%.

EDA Vendor Forecasts for the nominal Q4 2005

Altium provided no forecast guidance.

As guidance
Ansoft expects continued revenue growth for the remainder of its fiscal year of around 10% to 15% with earnings increasing around 25% over the last fiscal year. This translates into expected revenue of $19 to $20 million in the next quarter and $25 to $25 million in the following quarter.

As guidance
Cadence expects revenues in the fourth quarter to be in the range of $360 million to $370 million compared to $337 million in the quarter just completed. For the full year 2005 the company expects total revenue in the range of $1.31 billion to $1.32 billion.

For guidance
Magma expects revenue in the next quarter to be in the range of $38 to $42 million.

For guidance
Synopsys expects revenue in the next quarter to be in the range $254 million to $262 million, with 95% to come from backlog. For fiscal 2006 Synopsys expects revenue in the range $1,055 million to $1,085 million.

Synplicity expects revenue for the fourth quarter of 2005 to be approximately $16.8 million compared to $15.9 million in the quarter just completed. Revenue for 2005 is expected to be approximately $62.4 million, within the range of previous guidance.

EDACafe.com tracks the financial performance of some seventeen (17) public companies across the broader electronics tools market, from which we had arbitrarily selected nine (9) to represent EDA vendors in the software & programming industry.

Taken together, three of these EDA companies (Cadence, Mentor Graphics, and Synopsys) represent a dominant 85 to 90 percent of the total revenue in this grouping, and each of these three companies offers a wide array of software products and services.

The remaining six (6) EDA public companies selected - Altium, Ansoft, Magma, Nassda, Synplicity, and Verisity - offered specialized software/services products in specific EDA niches. Combined, they generated the remaining 10 to 15 percent of the revenue of the nine companies originally considered here. Not infrequently, some of these six smaller companies partnered with one or more of the Big Three (Cadence, Mentor, Synopsys) to provide end-customers with broader solution suites. (Of course, the possibility always remained (and remains) that one or more of the smaller companies could become acquisition candidates for the Big Three as well - see reference to Nassda and Verisity above).

The collective annual revenue of the originally-selected nine EDA companies worldwide was just north of $3 billion, a total which compares favorably to the combined ~$4 billion in annual revenue created by the eight MCAD companies covered in May 2003 and the nine MCAD companies covered quarterly since August 2003. However, even the pooled ~$7 billion in revenues of both of the selected MCAD and EDA company groupings pales in comparison to the $190 billion or so spent globally on an annual basis across all categories of software.

As with MCAD software, however, the importance of the EDA software niche lies in the leverage it provides to users applying the tools. EDA helps to create the electronic integrated circuits, microprocessors, memories, boards, MCMs, computers, PDAs, cell phones, automotive electronics and avionics, smart appliances, and other such electronic systems now clearly omnipresent in our everyday lives. Indeed, most of products mentioned above are electromechanical - demanding a smooth merger of EDA and MCAD software tools (still an objective yet to be fully realized).

Both MCAD and its slightly more youthful companion industry of EDA are arguably responsible for enabling virtually all contemporary design - analysis - manufacturing industries - industries which are key to creating real productivity and national wealth in every modern economy.

Note: Lawsuits; acquisitions of outside public & private companies; acquisitions of intellectual property; purchases of other assets; strategic changes in pricing and software license/lease practices; and/or other similar events frequently affect both the reported revenues and GAAP net income of all companies. Both EDA and MCAD companies are no strangers to these many and varied actions. Many of these "non-operating" company activities lead to entries "below the Operating Income line". Often these entries -- such as "integration costs, in-process R&D, amortization of intangible assets & deferred comp, interest income, pro or con income tax effects, etc" - can make large differences between pro-forma net income and GAAP net income.

Nevertheless, these impacts, positive or negative, are almost always the results of explicit employee actions and/or management decisions designed to supplement organic revenue growth in revenues, in earnings, or both. Accordingly, both the gain and the pain must be borne, in one accounting period or another. Accordingly, total revenues, GAAP net income and GAAP Earnings Per Share (EPS) are universally accepted measures to analyze fairly the relative and absolute performances of most private and public companies.